How many times will US Fed cut rates in 2025?

Federal Reserve officials have recently expressed new concerns about inflation. Despite a slight interest rate cut in December, there appears to be little appetite for further reductions at this time. This stance reflects the persistent nature of inflation and suggests that the interest rate level required to fully control it may be higher than previously anticipated.

According to the minutes of the Fed's most recent meeting, the number of rate cuts in 2025 may be reduced. The minutes of the December 17-18 meeting revealed that some participants believed that pausing rate cuts might be prudent if inflation data continues to exceed targets or if economic momentum remains strong. Nigel Green, CEO of deVere Group, stated, "The Fed minutes suggest a hawkish stance from officials, and we believe there will be at most one rate cut in 2025."

Fed officials are also concerned that the policies of the incoming administration could slow economic growth and increase unemployment. The minutes noted that participants expect inflation to continue to move towards the 2% target, but they also noted that recent higher-than-expected inflation data and potential changes in trade and immigration policies could cause this process to take longer than previously expected. This included mention of the plans of Donald Trump's administration.

Despite the slight rate cut in December, central bank officials appear to have little interest in further cuts due to the strength of the US economy and fears that inflation could become entrenched if rates are eased too quickly. Fed Chairman Jerome Powell once compared the current economic situation to "driving in fog or walking into a dark room full of furniture." Green believes the uncertainty stems from the dual pressures of sticky inflation and the unpredictable economic impact of the Trump administration's tariff and tax policies.

For the Federal Reserve, the road ahead is fraught with risks. The minutes appear to emphasize that inflation may not return to the 2% target without maintaining or even increasing the current level of monetary restrictions. Green said, "The Fed understands the stakes. Cutting rates too early could exacerbate inflation, damage its hard-won credibility, and force even more severe measures in the future."

The US Consumer Price Index (CPI) rose 2.7% year-on-year in November, up from October, while core inflation remained stubbornly at 3.3%. These figures suggest that price pressures are far from being alleviated, despite previous signs of cooling. Therefore, with inflation resurfacing, it will be difficult for the Fed to justify easing monetary policy.

In addition to inflation, the strong US job market further complicates the situation. Unemployment remains near historic lows, and a strong labor market typically discourages policymakers from cutting rates. Wage growth stimulates consumer spending, which could keep inflation elevated in 2025.

The articles on this website are for informational purposes only. The content regarding finance, investment, taxes, or law should not be considered financial advice or recommendations. Please refer to our full disclaimer policy.